Pity the Iraqi interpreters. Thousands gave their service and many their lives for the British army and people in the Iraq war. They have no actor and no glamour. They cower in the back streets of Basra awaiting a threatenedbullet or languish in the sweaty refugee camps of Damascus. Some have made it to Britain but only 400 have been allowed to settle, otherwise enduring internment and possible removal.

These interpreters are not attractive people from a mountain kingdom, who remind Britons of their long-lost militarist virtue and the glory of empire. They can summon no Joanna Lumley to their banner. Because they believed Tony Blair, who said he was bringing peace and security to their land, they committed themselves to British service. Now they and their families fear for their lives at the hands of their countrymen, ­victims of a ghastly double-cross. They are worse than forgotten, they are an embarrassment. Nobody hears their plea.

Yesterday's Downing Street U-turn in favour of full Gurkha settlement in Britain was a miserable affair, displaying what is most dysfunctional in modern British government. Lumley walked all over Gordon Brown and his immigration minister, Phil Woolas, when they could tear themselves from their expenses. Her performance dazzlingly illustrated the weakness of the present regime.

Lumley demanded, and got, two audiences with the prime minister that had been denied to the Gurkhas' own leaders and lawyers. She cunningly larded Brown with praise – "man of integrity … leader of our entire nation" – and thus turned him to putty in her hands. Woolas was left making policy on the hoof in corridors and television studios. The whips collapsed and Labour's 27 "Lumley rebels" voted against the government on 29 April. Even then Downing Street failed to admit defeat.

The government's former policy on the Gurkhas was reasonable. They are not British or Commonwealth citizens. They are soldiers of fortune, with less claim to settle in Britain than Commonwealth soldiers who likewise decide to take the Queen's shilling and a career in the British forces. Some 10% of the army is now such a "foreign legion". The wages are beyond any imaginable in their own country. That they serve under British officers and for British interests does not give them special moral standing.

The fierce loyalty of Gurkhas was born of an 1860 deal between the Nepalese monarchs and the British, whereby independence was traded for recruits for the British army in India, to which the ­Nepalese contributed a useful ferocity.

If Lumley's campaign had some justice, it was in criticising the present government's discriminatory decision – more generous than any earlier one – to allow post-1997 Gurkha veterans to settle, but not those older veterans who did serve the true empire. The 1997 cut-off was due to the withdrawal of the Gurkha regiment from its base in Hong Kong and its relocation in Britain.

The defence ministry has always taken the line that foreign troops who enter its employ do not thereby win citizenship. Otherwise half the world would sign on. The ministry's differentiation of categories of overseas veteran – foreign as against Commonwealth – was easy to ridicule but was understandable. Now, presumably, all foreign troops will be demanding rights of immediate settlement.

What the Gurkha saga demonstrates is an extraordinary Whitehall decrepitude. The decision was a shambles. As with the YouTube U-turn on MPs' expenses, the affair of the 10p tax rate, the wavering over Sats tests and the U-turn on DNA data, British government appears no longer to work to any of the customarily checks and balances once built into even the most informal constitution.

Downing Street takes executive decisions as if it were an absolute monarch, but in looking-glass style. The sequence is first a headline, then a decision, then the reaction, then the consultation, then the Whitehall consideration and finally the U-turn. If ever there were a recipe for bad government this is it.

I do not think ministers these days are peculiarly venal or incompetent – any more than I think MPs are more dishonest. All have allowed the hysteria of Westminster and Whitehall to get the better of sound judgment. Blair's collapsing of the civil service hierarchy and its traditional independence deprived his regime of a source of dispassionate advice. There is clearly no role for an official, secure in his job, to stop a hapless politician from making an ass of himself.

A politics student today would not understand Yes Minister because Sir Humphrey is no more. Permanent ­secretaries are mere heads of administration. They have been replaced as confidential advisers by a bevy of transient aides who owe their jobs to political patronage. There is no incentive to criticism, because it is likely to be unwelcome, and anyway the boss takes the rap for a fiasco.

The sight of the regiment of Gurkhas, medals clinking, kukris at the ready, advancing over the horizon with Lumley and her attendant chorus of journalists at their head, would have brought out the best in a seasoned civil servant. The response would be brisk: "Prepare yourself, prime minister, to be very brave, or I advise you to retreat at once."

There appears to be no such official in Brown's hermetically sealed entourage. All memoirs of the Blair/Brown years comment on the cessation of ­deliberative cabinet government and its replacement by "sofa government". Blair wailed that he could get nothing done, that he "bore the scars on my back" of resistance.

The reason is that he never understood how government worked. He never saw the virtue in preserving a hierarchy of semi-independent advice, which he associated (as did his idol, Margaret Thatcher) not with the wisdom of experience but with disloyalty. He saw no virtue in cabinet debate or collectivity. In foreign policy he chose to defer to George Bush and to God.

Blair, like Thatcher over the poll tax, replaced Whitehall's "scepticism first, loyalty afterwards" with loyalty first and then chaos. Brown as chancellor, who rarely consulted even his Treasury officials, endured one fiasco after another, as on tax credits and rail privatisation. At No 10 he conveys the image of a prime minister alone in his office, attended by a small and devoted cabal, unable to handle contradictory advice or exercise judgment based on it. A lost victim of circumstance, he seems to have no traction on the machinery of government.

Along with traditional banking and traditional politics, I would bet just now on the eventual return of traditional civil service. Central government – Tory as well Labour – must find a painful way of paying for the past decade of reckless borrowing and the past year of reckless spending. Defence must see the slashing of planes, aircraft carriers and submarines. Extravagant computer programmes must go. School and house building must be all but ended. Social services must be curtailed. Everything from art and opera to parks and gardens must take its cut.

These decisions will require political and bureaucratic navigation of a high order. They will require unprecedented cabinet discipline and collective responsibility. There is simply no way this will be achieved by the slapdash methodology of the Lumley affair. Decisions left to the mercy of lobbyists, editorialists and daughters of the regiment, however beautiful, will not pass muster.